Tax Simplification – Are the Days of Itemizing Over?

By Mike Brinker

Now that the calendar has turned to February, taxpayers have likely received most of their W-2s, 1098s, 1099s, and other tax reporting documents from their employers, mortgage company, banks, brokers, etc.

Next on the list for many people this time of year is to summarize information related to other common expenses that they have become accustomed to deducting on their tax returns so they can provide it to their CPA or tax preparer in a well-organized, presentable manner (hint, hint). Medical expenses, charitable contributions, mortgage interest, real estate taxes, state income taxes, car license fees, investment fees, and employee business expenses are the most common of these types of expense deductions.

But wait! Didn’t the Tax Cut and Jobs Act (TCJA) simplify things for a lot of people this year, by increasing the standard deduction and eliminating a lot of these typical deduction items?

Yes….and No.

Prior to the TCJA, the standard deduction for a married couple was $12,700. If a married couple had itemized deductions (such as those listed above) totaling more than this, they benefitted from using the higher itemized deduction amount on their return rather than taking the standard deduction.

The TCJA increased the standard deduction for a married couple to $24,000 for 2018. In addition, the TCJA eliminated some of the typical itemized deductions that taxpayers were used to taking – home equity loan/line of credit interest, investment fees, employee business expenses (including unreimbursed travel/mileage and home office expenses), job search expenses, and casualty and theft losses. Also, the overall deduction for state and local income, real estate, and personal property taxes is limited to $10,000 per tax return.

With these new restrictions on itemized deductions and the nearly- doubled standard deduction, tax filing (and the agony of totaling receipts and ledgers for an entire weekend or more) for a lot of people will be A LOT simpler this year because their itemized deductions will not exceed the $24,000 standard deduction, meaning they can kick back, rest easy, and simply take the standard deduction on their federal Form 1040s.

Federal 1040s? What about their Iowa tax returns? I’m glad you asked…but many people may not be quite as happy or see it the same as tax guru like me. You see, Iowa’s standard deduction for a married couple for 2018 is a mere $5,000. Also, Iowa did not reduce or eliminate the list of deductions above that were affected by the TCJA.

What does this mean? It means that many taxpayers who will now take the standard deduction on their federal returns will still benefit from itemizing on their Iowa returns. While this is good news for the most part, it does mean you will still need to set aside some indoor/desk time over the next few weekends, sharpen your pencils, and start organizing those documents and receipts! With the Iowa winter we’ve been having lately, along with the short-term forecast, that shouldn’t be a problem.

Mike Brinker, CPA | Partner
MBrinker@MHCScpa.com